When Should Steve Ballmer Be Fired? – Microsoft

But Microsoft has failed at almost every new product initiative the last several years

Microsoft's R&D costs are wildly out of control, and yielding little new revenue

Microsoft is lagging in all new growth markets – without competitive products

Microsoft's efforts at developing new markets have created enormous losses

Cloud computing could obsolete Microsoft's "core" products

Why didn't the Board fire Mr. Ballmer?

Reports are out, including at AppleInsider.com that "Failures in Mobile Space Cost Steve Ballmer Half his Bonus." Apparently the Board has been disappointed that under Mr. Ballmer's leadership Microsoft has missed the move to high growth markets for smartphones and tablets. Product failures, like Kin, have not made them too happy. But the more critical question is — why didn't the Board fire Mr. Ballmer?

A decade ago Microsoft was the undisputed king of personal software. Its near monopoly on operating systems and office automation software assured it a high cash flow. But over the last 10 years, Microsoft has done nothing for its shareholders or customers. The XBox has been a yawn, far from breaking even on the massive investments. All computer users have received for massive R&D investments are Vista, Windows 7 and Office 2007 followed by Office 2010 — the definition of technology "yawners." None of the new products have created new demand for Microsoft, brought in any new customers or expanded revenue. Meanwhile, the 45% market share Microsoft had in smartphones has shrunk to single digits, at best, as Apple and Google are cleaning up the marketplace. Early editions of tablets were dropped, and developers such as HP have abandoned Microsoft projects.

Yet, other tech companies have done quite well. Even though Apple was 45 days from bankruptcy in 2000, and Google was a fledgling young company, both Apple and Google have launched new products in smartphones, mobile computing and entertainment. And Apple has sold over 4 million tablets already in 2010 – while investors and customers wait for Microsoft to maybe get one to market in 2011.

Despite its market domination, Microsoft's revenues have gone nowhere. And are projected to continue going relatively nowhere. While Apple has developed new growth markets, Microsoft has invested in defending its historical revenue base.

Yet, Microsoft spent 8 times as much on R&D in 2009 to accomplish this much lower revenue growth. At a recent conference Mr. Ballmer admitted he thought as much as 200 man years of effort was wasted on Vista development in recent years. That Microsoft has hit declining rates of return on its investment in "defending the base" is quite obvious. Equally obvious is its clear willingness to throw money at projects even though it has no skill for understanding market needs sin order for development to yield anything commercially successful!

And investments in opportunities outside the "core" business have not only failed to produce significant revenue, they've created vast losses. Such as the horrible costs incurred in on-line markets. Trying to launch Bing and compete with Google in ad sales far too late and with weak products has literally created losses that exceed revenues!

And the result has been a disaster for Microsoft shareholders – literally no gain the last several years. This has allowed Apple to create a market value that actually exceeds Microsoft's. An idea that seemed impossible during most of the decade!

Under Mr. Ballmer's leadership Microsoft has done nothing more than protect market share in its original business – and at a huge cost that has not benefited shareholders with dividends or growth. No profitable expansion into new businesses, despite several newly emerging markets. And now late in practically every category. Costs for business development that are wildly out of control, despite producing little incremental revenue. And sitting on a business in operating systems and office software that is coming under more critical attack daily by the shift toward cloud computing. A shift that could make its "core" products entirely obsolete before 2020.

Given this performance, giving Mr. Ballmer his "target" bonus for last year seems ridiculous – even if half the maximum. The proper question should be why does he still have his job? And if you still own Microsoft stock — why as well?

7 thoughts on “When Should Steve Ballmer Be Fired? – Microsoft”

Apple did a great job with developing a stripped down O/S for running the iPhone and iPad. Microsoft will spend a lot of money attempting to get Windows 8 to work on an iPad like device. They are forgetting that the applications will have to be re-developed from working with a mouse to a finger, something Apple has a 4 year lead on already.

Adam,
To add to this conversation:
Although Microsoft deserves your doom & gloom summary of their efforts and results over the past decade, I believe that they also deserve big praise, but they do not get it. Your view produces effective results in terms of looking poorly on Microsoft and most media and analysts do the same. Indeed Microsoft has played second fiddle in consumer based technologies, and web based solutions. Either because they just don’t get it or because they are too concerned with protecting their core. I think it is a little of both. Although I am not a fan of Microsoft’s innovation history, your post has rather very narrow views of Microsoft over the past decade..
First: Apple is a hardware company. Microsoft is a software company. Very different as you are very well aware, from product development or margins, these two companies operate in different sectors.
Second: Microsoft has indeed been pathetic in consumer and web based applications. But it seems all the media and analysts focus on are these. Microsoft continues to have a rather strong grip on business applications, enterprise technologies and productivity apps where there are few competitors. Apple, Google and the like simply cannot compete with Microsoft when it comes to business apps such as their dynamics products line and other enterprise technologies. In fact, you would be hard pressed to find many competitors that can really generate more revenues or clients as compared to Microsoft’s Dynamics strategy, Sharepoint Strategy, etc.
Third: Not grown revenues?? Back in 2004, Microsoft had revenues around $35Billion. A short 6 years later with all the changes in web technologies, the growth of Apple, Google, Facebook, etc, and with all the mis- steps that Microsoft made..despite all this revenues have grown to $64billion. That is significant and basically ignored by most media and analysts. But should nevertheless be applauded.
Fourth. New Product Lines: At the beginning of the decade Microsoft was basically a technology and productivity company. They then entered the business applications market with purchases of accounting products, among others such as Great Plains, Navision. Along with development of CRM their Dynamics business applications is an extremely successful division and will continue to dominate over the next decade. As well, the majority of TOP accounting and Business application VARs are Microsoft VARs. This success is almost never mentioned in the media, but it should. Who can compete with Microsoft in this area? SAGE?, SAP? Intuit? Certainly not Apple or Google. Microsoft should get their lumps but they deserve much credit for the Dynamics division and its successes. Also, Sharepoint has quietly become the number one collaboration platform over the past few years. Again, a great success not mentioned. Also, their server and operated system business continue to produce great results. But again, not sexy to talk about.
Yes, Microsoft has gone flat in consumer and web application space in the past few years, wasting away enormous R&D budgets with little to show for it. But regardless of their failures, they still produce enormous revenues and profits. This will not change anytime soon. Apple is a hardware company, their revenues SHOULD be larger than Microsoft’s and probably more in line with Sony. I find that media and analysts talk too much of the consumer market and what Apple and Google are doing and what Microsoft is not because this market is sexy. The success that Microsoft has had in Business Applications is not sexy. The next ten years will be far better for Microsoft in the consumer and web space as they better understand how to generate revenues from their web strategies while still generating from their core.
Bottom line, don’t hate Microsoft too much as a strategist. They deserve their lumps for poor execution on consumer and web strategies but they also deserve credit for their revenue growth, their profitability and their business divisions and far too often they do not get it. But yes, hate them all you want as a shareholder for not generating stock appreciation in the past 10 years. (although they have done their job in producing revenues and profits and some dividends…perhaps the market simply does not like Microsoft)
Thanks for the post…

Albert, you are obviously a fan boy and a rather naive one at that…I believe the point of the article is Ballmer’s leadership abilities or the lack there of and as such the article is dead on. Ballmer is an idiot and it defies nature that he is still at the helm of MSFT. Also, Microsoft is not known for it’s organic growth, they prefer to “acquire” others with a good idea or product, where as Apple and Google are true innovators. One more thing, revenue and profit do not mean the same thing and if you can’t turn either into shareholder value, well that’s pretty bad, since ultimately it always comes down to the board of directors, as well as shareholders and how much money you made for them.

@Steve Laras. I agree with the two above me.Google, especially Google, has done nothing more than seeing a new innovative idea and then throw millions to get it(android,blogger etc.). As for Apple I have read about its aquisitions (can’t remember much right now) and follows a similar path as google. I do believe that Ballmer has sunk Microsoft like Titanic but I can’t say that Microsoft has lost its touch on some aspects. For example the Live platform(especially Hotmail) have a dominant share on usage,where Apple’s iChat and Google Talk still retain a much smaller one. In cloud computing Microsoft was among the first to introduce Skydrive where iCloud Google’s one(can’t remember the name)only showed up recently.Apple might got the grip of mobile computing(tablets, iphone etc.) but they have been criticised thoroughly for being out of date regarding their products’ capabilities(iphone 3gs vs anroid 2.2 froyo for example) The fact that Apple and Google throw millions in ads(google’s largest revenue comes for AdSense not android) doesn’t make them better. And above all,Windows phone is the second pure, not ripped-off mobile os(after iOS). So yes Ballmer needs to take a hike,but no Microsoft is trying and eventually they will succeed.
P.S: I am no one company’s fan but I do have a certain hatred for Apple.